Together, we can get through this . . .

23 percent of American families experienced an income decline of at least 25 percent between 2008 and 2009. Unexpected medical expenses are a factor in about half of all personal bankruptcies. Economic insecurity has become the rule, not the exception, for many Americans – even in good times. — Jacob S. Hacker

Cover via Amazon

Q: What do you mean when you say there’s been a “Great Risk Shift” from broad shoulders of government onto the fragile backs of American families?

A: For decades, Americans grew both steadily richer and steadily more secure. They received health and retirement benefits and stable jobs from employers. Social Security, Medicare, and other public programs stepped in when employers would or could not. But over the last generation, this public-private framework of security has unraveled, leaving Americans newly exposed to the harshest risks of our turbulent economy: losing a good job, losing health care, losing retirement savings, losing a home—in short, losing a stable financial footing. Increasingly, Americans find themselves on a financial tightrope, without a safety net if they slip. Bankruptcy rates are skyrocketing, and more people don’t have health insurance or secure retirement benefits. Meanwhile, family incomes fluctuate up and down three times as violently today as they did in the early 1970s. At bottom, what my research shows is simple and frightening: Families are now facing up and down swings that rival the most volatile stocks.

Q: But Americans are doing better than ever, right? As with the stock market, isn’t risk just the flipside of higher economic returns?

A: Wrong. It would be one thing if economically volatile families were making out like bandits. But except for the richest of the rich, they’re not. And even if they were, the Great Risk Shift would completely undermine the gains. That’s because insecurity robs Americans of satisfaction and confidence. Social psychologists have a name for this phenomenon: “loss aversion,” which means simply that people feel greater pain when something is taken away than they feel pleasure when they receive something of comparable worth. Consider that Americans prefer, by a two-to-one margin, the security of knowing that their present income is protected over the opportunity to make more money. Or that among relatively rich nations, the best predictor of a country’s level of happiness (as measured by polls) is economic security, not the level of income itself. Of course, Americans want—and deserve—both security and opportunity. But without basic financial security, even a relatively strong economy will produce anxiety and fear, rather than optimism and hope, and that’s what we are seeing today.

Q: But some Americans are doing better, right? Isn’t insecurity just a problem of people without a good education or who aren’t married or who make bad personal choices?

A: Wrong again. This might have been true in the past, but the insecurities that were once limited to the working poor have increasingly crept into the lives of middle-class—and even upper-middle-class—Americans. Remember that statistic about family income instability being three times higher than it was in the early 1970s? Well, that’s as true for college-educated workers as it is for those who never finished high school. Yes, you are more secure if you have a good education; but you’re still facing rapidly rising insecurity. Meanwhile, the group most likely to file for bankruptcy today is married couples with kids. What makes the Great Risk Shift so powerful is that it has reached into the lives of almost every American: old and young, economically well off and economically struggling. And that’s why it’s an issue that could transform American politics from top to bottom.

Q: “Jobs, Families, Health Care, Retirement” – That’s a long list. Aren’t the problems different in each of these areas?

A: Not at root: They all concern risk, a word we use a lot but the meaning of which we don’t always consider. We face risk whenever there’s a chance of multiple things occurring—good or bad. Risk gives us opportunities, but it also poses threats. And today, the threats facing our family finances are at the red level. The risks that come from our jobs, our families, our health care, and our retirement are every bit as dangerous to our financial health as medical and safety risks are to our personal health. But often these risks aren’t as easy for people to think about. That’s why I wrote this book—to show what the real risks are and how they’re all deeply interrelated. When we lose our job, for example, our health care, retirement savings, and family finances are all at risk, too. When we get sick or our child gets sick, everything else can come crumbling down—unless there’s a safety net.

Q: You speak of a safety net. But don’t we have to accept that it’s up to us to deal with these new economic insecurities on our own?

A: Yes, government and companies have pulled back—that’s the whole point of my book. But there is a real alternative to the vision that’s being held up today as the one true path forward. That vision, often called the “ownership society”, says that people should simply save and invest on their own through IRAs, Health Savings Accounts, private Social Security accounts, and the like. These accounts are costly, and they give the most to people who need protection from risk the least. But worst of all, they wouldn’t provide real security. So instead, we need to place Americans’ security on a stronger foundation—the idea of providing security to expand opportunity. In this vision, people who work hard and do right by their families would be given the means to protect themselves against the most severe economic risks they face, precisely so they have the confidence to reach for and achieve the American Dream.

Q: What can Americans do to reduce their own exposure to economic risk?

A: I argue for a three-step response: Get Wise, Get Mad, and Get Even. Getting wise means figuring out what the risks one faces are and preparing for them. Getting mad means recognizing that the Great Risk Shift isn’t inevitable; it’s a result of a failure of vision and leadership at the highest levels of our society. And getting even means rebalancing our off-kilter public priorities to achieve vital goals that are within our reach: health security for all, a stable system of private pensions, and a safety net to catch us when we slip from the ladder of economic opportunity. The Great Risk Shift isn’t someone else’s problem; it’s our problem, and it’s ours to fix.